Generally, the Child Support Agency (CSA) governs child support payments between separated parents by way of an ‘administrative assessment’. The assessment is based on a complex formula that takes into account the costs of the child/children, the child/children’s care arrangements and the parents’ respective income, to name a few.
Having said that, separated parents do have the option of coming to their own agreement about child support that may or may not involve the CSA. This is known as a ‘private child support agreement’. A private child support agreement is a written agreement about child support and can include payment of cash to the primary carer of the child/children (known as ‘periodic payments’), as well as payment of non-cash items, such as school fees, health insurance and extracurricular activities (known as ‘non-periodic payments’).
There are two ways to formalise a private agreement about child support. They are:
- A Limited Child Support Agreement; OR
- A Binding Child Support Agreement.
Both a Limited Child Support Agreement (LCSA) and a Binding Child Support Agreement (BCSA) must be in writing and must be signed by both parties. However, there are some key differences in the agreements, the most relevant being:
- To enter into a LCSA, there must already be an administrative assessment by the CSA. Alternatively, a BCSA does not require an administrative assessment whatsoever.
- Payments for child support in a LCSA must be at least equal to, or more than, the administrative assessment generated by the CSA.
- Payments in a BCSA can be for any amount of child support, including amounts that are less than what the CSA would assess (hence why an administrative assessment is not required).
- Parties wishing to enter into a BCSA must obtain independent legal advice prior to signing the agreement. The lawyer for each party must sign and attach a Certificate of Independent Legal Advice to the BCSA for it to be binding and final.
- In contrast, there is no requirement to obtain independent legal advice prior to signing a LCSA. However, we do recommend that you obtain legal advice before making any child support agreement.
- A LCSA operates for a maximum of 3 years. After this time, the agreement can be unilaterally terminated by either party.
- On the other hand, a BCSA is final and can only be terminated with the consent of both parties (after receiving legal advice) or by way of a terminating event as defined in the agreement (such as, at the time when the child turns 18 years of age).
If your employment is unstable or your income is prone to fluctuations, but you still want to formalise child support for a defined period, then a LCSA may be best for you. This type of agreement can provide certainty regarding your payment obligations and can assist separated parents to navigate child support matters in the short term.
Alternatively, if your job is secure and your income is stable (or better yet, likely to increase substantially), then a BCSA may be best for you.
On the other hand, if you are the primary carer on a low income, and your former partner enjoys a substantial income with regular bonuses throughout the financial year, then it may not be advisable to enter into a BCSA. This is because the payments to you will be fixed at the agreed amount indefinitely, regardless of increases to the other parent’s income.
It is not advisable to enter into a BCSA if you work in an industry that is speculative, as you may be bound to the payment terms even if your income reduces significantly.
Other matters to consider when deciding what kind of private agreement to make include:
- Are the care arrangements for the child/children going to stay the same, or will they change?
- If the care arrangements for the child/children are likely to change, will the change be significant?
- Will the primary carer of the child/children change from one parent to another?
- If your financial circumstances change significantly, will you still be able to pay the rate of child support that you currently pay?
- Are your circumstances likely to change in the future? For example, will you remarry? Will you have more children?
- Are there any other dependants that you are financially responsible for that will not be covered by the private agreement?
- Are you in good health and able to continue working to meet your financial obligations under the private agreement?
- Do you and the other parent have an amicable co-parenting relationship? Can you navigate any changes to the agreement between you, or is there likely to be conflict?
The CSA does provide a template for a LCSA that you can download from the ‘Services Australia’ website. Alternatively, a lawyer can draft it for you. As stated earlier, while legal advice is not required for a LCSA, it is strongly recommended that you speak to a lawyer before signing.
In relation to the BCSA, this is a complex and detailed agreement that will have to be drafted by a lawyer, and both parties will need to engage a different lawyer to act on their behalf and provide them with independent legal advice as required by section 80C of the Child Support (Assessment) Act 1989.
Child Support is a complex area of law, and there are many factors to consider when determining what option is best for you. We strongly suggest that you obtain legal advice about your circumstances before you discuss a private agreement with the other parent. Our team of experienced Family Lawyers can assist you to determine which type of agreement suits you best. Call us today on (03) 9435 9044 to book an appointment.